Insurance Brokers: Regulatory Requirements and Market Challenges Consumer Assistance Small Group Consultation Joel Ario Managing Director, Manatt Health Solutions October 4, 2012 Support for this resource provided through a grant from the Robert Wood Johnson Foundation’s State Health Reform Assistance Network program.
Federal Laws and Regulations Starting point: federal law leaves most broker issues to the states, but does set some parameters Reinforces market pressures to manage distribution costs • Carriers must meet minimum Medical Loss Ratios (MLR) (ACA 158.103) • The premium rate for qualified health plans must be the same, regardless of if it is sold through the exchange or offered directly from an insurer or through an agent (ACA 1301(a)(1)(C)(iii)) Adds Navigators and Consumer Assisters to support consumer outreach and enrollment • Agents and brokers are one of the listed categories of potential navigators ( ACA 1311). • Exchange must ensure that Navigators meet certain conflict of interest rules, including that Navigators can not receive any consideration directly or indirectly from any health insurance issuer in connection with the enrollment of any individuals or employees in a QHP or non-QHP (ACA 155.210(d)) Allows states to permit web-based brokers to help enroll consumers in QHPs Federal regulations permit web-based brokers, at state discretion, to coordinate with the Exchange to enroll consumers in QHPs, applies both to state-based exchange and federally-facilitated exchange Web – based brokers must meet conditions to qualify, including: meeting standards for disclosure and display of all QHP information, not providing financial incentives to steer, maintaining audit trails and records in an electronic format for a minimum of ten years, and providing consumers with the ability to withdraw from the process and use the Exchange web site at any time. (ACA 155.220(c)(3) ) 2
State Laws and Regulations Definitions ( § 58-33-10) Sample Definitions ( §58-33-10) • " Insurance producer " or " producer " means a person Standard Insurance Regulation required to be licensed under this Article to sell, solicit, or negotiate insurance. "Insurance producer" or "producer" • Insurance departments responsible for includes an agent, broker, and limited representative. oversight of agents and brokers • “ Commission " only agents who are duly licensed with • Typically includes training, licensing, and appropriate company appointments, licensed brokers and licensed limited lines producers, or licensed limited continuing education requirements representatives may accept, directly or indirectly, any • Also the authority to fine agents or commission, fee, or other valuable consideration for the revoke licenses sale, solicitation, or negotiation of insurance. • “ Appointment ”. Individuals who hold a valid insurance agent's license shall not, either directly or for an insurance agency, solicit, negotiate, or otherwise act as an agent for an insurer by which the individual has not been appointed. Exchanges can add Exchange-specific requirements 3
Case for Standardizing Commissions While financial incentives for steering exist in market today, some states are considering options for standardizing commissions in 2014 Scenario A Scenario B Illustrative Example: Same Illustrative Example: Same Premium Rate in the Exchange Premium Rate out of the Exchange Financial incentive for Financial incentive to steer to Financial incentive to steer to Agent/Broker to steer out of Plan B Plan C * the Exchange $100 $100 $100 $100 Premium PMPM Premium PMPM $6 $8 $10 $8 $15 $10 $20 $25 $90 $90 $85 $85 $85 $80 $75 $75 Health Plan A Health Plan B Health Plan B Health Plan C = Health Plan Rate Build Up = Agent/Broker Commission 10/10/2012 • 4
Four Approaches to Standardizing Commissions 1 All insurers pay the same standard PMPM commission for all plans, including group and individual plans • Rationale: Mitigates risk of agent/brokers steering to any particular insurer or plan Across the Board • Action Steps: Determine what specific amount should be set and how program could be enacted/implemented 2 Each insurer can set its own commission, but it must be the same for all plans offered by that Insurer on the Exchange Across Insurer • Rationale : Mitigates risk of insurer setting attractive compensation rates for certain Plans plans (e.g. bronze) • Action Steps: Determine how program could be enacted/implemented and issue guidance to insurers on establishment of a standard commission rate across all plans 3 Each insurer must use the same commissions outside the Exchange as they use inside the Exchange Parity Between • Rationale : Mitigates risk of steering across marketplaces the Exchange and • Action Steps: Determine how program could be enacted/implemented and issue Outside Market guidance to insurers on what “same” means 4 Maintain status quo allowing insurers to set their own commission structures within Status Quo current regulations • Rationale : Avoids market disruption 5
The Case for Regulating Appointments Another concern is the ability of Exchange-certified agents/brokers to represent and receive compensation for all products sold on the Exchange Exchange Agents Certified by Exchange to Sell Into Exchange 1 2 3 4 5 Agents appointed by Insurer to Offer 4 & 5 are Certified but not Appointed Health Insurer’s A Insurance Products Implications: Agent 4 and 5 may Health Insurer A steer consumer to a health plan where they are appointed or, if they offer health insurer A’s products, they may not be able to be compensated 6
Four Approaches to Regulating Appointments 1 Require agents to obtain appointments with all QHP insurers in order to conduct business in the Exchange Require Agents to • Rationale: Mitigates risk of agent/brokers steering to any particular insurer or plan Obtain • Action Steps: Issue requirement as part of broader certification requirement for Appointments agent/broker participation in the Exchange 2 Require insurers offering QHP products in the Exchange to appoint all agents authorized to conduct business in the Exchange Require Insurers to • Rationale: Mitigates risk of agent/brokers steering to any particular insurer or plan Appoint all Agents • Action Steps: Issue requirement as part of broader certification requirements for for QHPs insurer participation in the Exchange 3 • The Exchange has authority to appoint agents as part of its agent certification program and then receives commissions from insurers and passes them through to agents, negating need for agents to be appointed individually by each insurer Oregon Model • Rationale: Mitigates risk of agent/brokers steering to any particular insurer or plan • Action Steps: Explore how option can be enabled as part of broader effort to establish the Exchange 4 • Allow agents to sell in Exchange without having appointments with all insurers Status Quo • Rationale : Avoids market disruption 7
Lessons from a Former Insurance Commissioner Agents are an excellent sounding board A force to be reckoned with in every state A force to be reckoned with in every state Agents are an excellent sounding board • Their strengths are knowing the marketplace • Insurance agents and brokers are a well and having a genuine appreciation for both the organized network in every state, with more than consumer and insurer viewpoints (they are 50,000 licensees in most states • They can be an invaluable ally or your worst often caught in the middle) • They typically are a lot easier to engage than enemy insurers (they are the risk takers in a risk averse industry) Market dynamics are a powerful force Market dynamics are a powerful force toward Value proposition is clearer in the small group Value proposition is clearer in the small toward efficiency in distribution efficiency in distribution channels market than the individual one group market than the individual one channels • Always listen carefully when the topic is why • Agents are the human resource shops for small some new regulatory idea will produce employers and integral to the success of SHOP • unintended consequences or otherwise not Agents are fighting an uphill battle in the work individual market, particularly with the • Be more wary when the topic is why some new Exchanges and guaranteed issue regulatory idea is necessary to protect agents against market dynamics
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